Prattle Perfectly Predicts the BOJ Decision | MACRO MINUTES

  • Thursday, November 3, 2016

Welcome to The Signal’s weekly “Macro Minutes.” Each week, we analyze the most important communications from a specific region and provide insight based on our quantitative analysis of central banks.

11-3-16-boj

The BOJ held rates this week, adding another correct policy call to Prattle’s record.

On Monday, Prattle forecast that the BOJ would hold rates and lower its inflation forecasts, asserting that “the bank’s leadership is coalescing around the wait-and-see mentality, but the dovishness of the bank’s raw score and its momentum (-0.17) both suggest it will have to come to grips with lower inflation.” The BOJ matched Prattle’s forecast precisely, holding rates and trimming inflation forecasts.

Prattle’s hawkish sentiment score* for the policy statement (residual** 1.33) quantitatively captured in real time what the media later interpreted as the BOJ’s confidence in a steady, albeit slow, economic recovery.

The bottom line: BOJ momentum now sits at a neutral -0.14, indicating the bank will likely continue its wait-and-see approach in the near term.

The Signal Team

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* Prattle’s models are based on the historical relationship between central bank language and market reaction, which is used as basis of evaluation for future communications. The scores are normalized around zero and range between -2 and 2, negative numbers indicating dovishness and positive numbers indicating hawkishness.

** Residual scores represent the tone of a communication compared to the rolling, 12-month average for that individual communication type or speaker. Raw scores represent the tone of a communication compared to the average of all communications. Momentum is the average the last ten residual scores.

Disclaimer: the forecasts provided herein are based upon sources believed by Prattle Analytics, LLC D/B/A Prattle, to be reliable and to be developed from models which are generally accepted as methods for producing economic forecasts.

Prattle cannot guarantee the accuracy or completeness of the information upon which this Report and such forecasts are based. This Report does not purport to disclose any risks or benefits of entering into particular transactions and should not be construed as advice with regard to any specific investment or instance. The opinions and judgments expressed within this Report made as of this date are subject to change without notice.

Copyright © 2016 Prattle Analytics, LLC.